Banking on 'At Risk' Customers

The banking sector in Canada is highly touted for its strength. High levels of security and customer service are two of its top hallmarks. Compared to its counterparts in other countries, the system is much less fragmented and is governed by a strong framework of government legislation. This means that major Canadian financial institutions are of a size far greater than what might be expected given the population base, and therefore are able to exert significant investment leverage on behalf of their customers and investors. And on the whole, retail banking customers are well satisfied with the services they receive and confident in the ability of their financial institution to succeed over the long term.

But despite this very positive environment, significant `at risk' customer groups exist within the market. For this article, we will define `at risk' customers as those who have a higher potential than others for changing their patterns of banking behaviour to the detriment of their existing primary banking relationship. A primary banking relationship is defined as the financial institution that a customer uses most often. In many cases, `at risk' customers have perceptions and attitudes that make them more likely to change their banking relationships over time. Although only a small proportion of customers switch primary financial institutions during the course of a year, this behaviour becomes significant when seen over the long term. Fully half of primary banking customers claim to have switched primary financial institutions in the past, making it prudent to have a deep understanding of what can stimulate this type of behaviour in the present. As shown below in Figure 1, some key triggers for switching are within the power of institutions to manage.

Trying to optimize the customer experience to avoid problems and disappointments is critical, as is striving to offer competitive rates and fees. Other factors like major life events are significant triggers for switching primary financial institutions and are beyond the control of institutions.

This article focuses on defining `at risk' groups and discussing ways in which financial institutions can work to create and cement new relationships by attracting `at risk' customers of other financial institutions. All information used is sourced from the Ipsos Reid Customer Satisfaction Index Study (CSI), a quarterly online survey on personal banking, encompassing more than 45,000 customer interviews per year. Questions are focused on overall customer satisfaction, attitudes and behaviours related to banking, as well as usage and rating of various banking channels and services among all key financial institutions across Canada.

In a general sense, potential switchers are the most critical `at risk' group for any financial institution. Using CSI data, we can define potential switchers in three different ways:

1. Customers who have indicated a potential to switch entirely to a new primary financial institution (FI) in the next 12 months.
2. Those who are uncertain or negative about giving more of their business to their primary FI in the next 12 months.
3. Those who are open to considering another FI for a major new service such as a mortgage or credit card.

As can be seen in Figure 2 below, in the entire retail banking customer universe, all three of these groups are significant in size, especially groups 2 and 3.

Beginning with the right side bar, we see that almost four in ten primary FI customers are ambivalent about or negatively inclined towards increasing their business with their primary FI over the next 12 months. The middle bar confirms that one in four primary FI customers are not averse to considering another FI for a new product or service over the same time period. Financial institutions with significant growth objectives need to be able to identify `at risk' customers of competitor organizations and provide compelling reasons for them to begin forging new mutually rewarding relationships with them. In particular, it is essential that FI's act to attract, at the very least, their fair share of the 9% of primary FI customers who are most vulnerable to switching entirely to a new primary FI in the next twelve months. Employing CSI results, we are able to identify a variety of important levers that can be exercised by FI's in an attempt to attract `at risk' customers of competitor organizations.

Identifying those customers who may switch wholesale to another FI can be challenging, especially from a demographic standpoint. Other than a marked skew towards customers under age 44 as shown in Figure 3 below, next 12 month switchers are not overly represented in specific income, education or occupation groups, nor are they markedly skewed by gender.

Likewise, distinct demographic profiles are not in evidence for those who are willing to consider signing up for a new product or service with a new financial institution or who are just not sure that they will increase the business they do with their current primary FI. Instead, FI's wanting to attract new customers who are at risk with their current FI must look beyond demographics for attitudinal and behavioural factors on which they can capitalize. CSI results help to illuminate some of these triggers; namely those connected most to the nature of the overall customer experience, problem incidence and resolution, and the financial advice channel experience.

`At risk' customers, by definition, are less positive about their relationship with their primary FI. As Figure 4 highlights, they are notably less likely than other customers to feel that they are getting good value in the products and services they have and use, and less likely to feel that their business is valued. Financial institutions contemplating or currently working to attract `at risk' customers of other FI's need to ensure they are sending a strong message that new customers would be valued. Likewise, they must communicate in a clear and credible manner that the products and services offered to them will be superior in important ways to those currently being offered by their primary FI.

Not surprisingly, customers who are less convinced that their business is valued and that they are getting good value in return for their money are less likely to be advocates for their own primary FI. It is likely that significant numbers of `at risk' customers are actively expressing negative opinions about their FI to others. Financial institutions choosing to work to attract `at risk' customers who harbour negative feelings for their current primary FI need to tap into and leverage the sense of frustation and discontent these customers have. Solutions to commonly experienced problems at competitor FI's, as well as perceived deficiencies with other FI's products and services, can be directly addressed and highlighted in advertising and promotional efforts. Figure 5 illustrates how important it is to encourage loyal customers to help create a positive impression among people `at risk' with other institutions. Mobilizing and encouraging satisfied customers to make positive recommendations has to be part of any successful recruitment of dissatisfied competitor customers.

CSI results clearly illustrate that `at risk' customers have different types of relationships with their primary financial institution than does the overall customer base. The study shows that `at risk' customers tend to have less complex banking relationships with shorter average tenure than seen for those less likely to switch. Those at risk of switching entirely in the next twelve months are connected with fewer services and products on average than other customers. They are also less likely to be holding more complex products like an RRSP, TFSA, or a mortgage with their primary FI. Additionally, as shown below in Figure 6, potential wholesale switchers tend to be lighter users of major transaction and communication channels. This same pattern of use is also in evidence for the other two `at risk' groups.

These channel usage differences and their less complex banking relationship needs demonstrate the importance of working to lure `at risk' customers very early in their banking relationship, before their behaviours become entrenched and they feel less inclined to make major changes. Attracting these potential switchers thus represents a significant upside in terms of securing what business they currently have and growing them into more complex profitable relationships over time.

`At risk' customer groups report much less positively on their branch staff experience. Personal interactions are often the most complex and important ones in terms of molding and cementing the relationship that customers have with their financial institution. Customers will likely remember a negative branch experience long after they have forgotten a smaller issue like a late statement or a challenge finding a nearby ATM machine. Financial institutions working to attract `at risk' customers from a competitor should look to exploit weaknesses or deficiencies in competitors' customer service offerings or processes. Figure 7 below illustrates clearly that `at risk' primary FI customers rate branch personnel less positively across a number of dimensions than do others.

Staff efficiency and knowledge are rated markedly lower by potential switchers. Perhaps even more important is the low rating given by all three `at risk' groups on having managers available when needed. Often, managers need to step in to solve problems or deal with complex time sensitive transactions. Ensuring that the appropriate senior level help will be available in the branch when needed, and delivering on this promise, is of critical importance. These `moments of truth' when issues are resolved and great service is received must be a focus of any comprehensive program to cement and grow relationships. It is a key way to differentiate one financial institution from another and attract customers who have negative experiences related to personal service at their current pimary FI.

When asked what specific types of problems they were having with their branch experience, `at risk' primary FI customers mentioned two main types of problems much more often than others did. These were problems related to staff issues and to financial/investment advice received.

Communicating a commitment to guarantee a positive branch experience and provide helpful advice can give unhappy primary customers of other financial institutions powerful reasons to consider a change. In the Canadian marketplace, where customers see that various financial institutions offer similar products and rates, differentiating on the basis of the quality of personal interaction is a key way to attract new customers.

On a total basis, `at risk' customers are more likely than others to have experienced a significant problem with their primary FI. Also of note, and shown below, is that the rate of problem resolution, as well as the level of satisfactory resolution, is lower for `at risk' customers. Creating communications plans that zero in on competitor customers who have had a negative problem experience represents a major opportunity to attract new customers. Negative feelings associated with unresolved or poorly resolved problems persist in customers minds and can push them to consider alternatives to switch institutions outright.

Delivery of financial advice is also a critical area to focus on when developing strategies to attract `at risk' customers of other institutions. As made clear in Figure 10 below, CSI Study results indicate that `at risk' customers are less likely to have received any kind of financial advice or a formal written plan from their primary FI. In addition, `at risk' customers who have received a formal plan in the past 12 months are significantly less satisfied with the plan in terms of its ability to help them meet their financial goals. Financial advice is typically sought when significant decisions are being faced having to do with things like investing or taking on new debt. When advice is not easily obtained or available, or not rated well when it is provided, the customer relationship can be severely damaged. A negative experience with financial advice, whether it is informal or a formal written plan, can end up being more serious than problems with day to day service.

Building a reputation as an institution that delivers timely and appropriate financial advice can provide a powerful incentive for `at risk' customers of other institutions to start a new primary banking relationship or turn a secondary one into a new primary one.

Overall CSI Study results confirm that financial institutions have a significant issue on their hands with `at risk' customers. Focusing on the relatively small proportion of primary FI customers who indicate they may completely switch financial institutions every year is vital for long term success. It is also necessary to focus on more generally defined and larger `at risk' groups who may be considering less abrupt but still very significant changes in their primary banking relationship. Concentrating on the triggers that may act to push customers into an `at risk' group can help inform strategies and tactics to progressively attract the attention of these customers of other financial institutions until they reach a kind of tipping point. The tipping point need not mean a complete switch to another primary banking relationship in one go. Stimulating trial of a new service or a partial move of some assets can be the beginning of an eventual complete switch. The CSI survey helps highlight several trigger points that can be capitalized upon to create new relationships with those who have another primary relationship. These include communicating superior performance in areas including the following:

• Reinforcing a customer-centric focus that values client business and delivers value for the money
• Making efficent branch staff interactions/knowledgeable staff a top priority
• Ensuring availability of branch managers to address complex needs
• Minimizing problems related to branch service
• Promptly resolving problems to the satisfaction of the customer
• Proactively providing high quality financial advice and planning

Performing to very high standards in the above areas is a core priority for any financial institution planning to retain satisfied and positively engaged customers. Financial institutions aiming to attract `at risk' customers of competitors must also communicate their commitment in these areas to a much wider audience. Doing so successfully will help ensure longterm growth as disgruntled and ambivalent customers of other financial institutions progressively change their attitudes and behaviour in favour of new primary banking arrangements.

For more information on Ipsos Reid's Customer Satisfaction Index Study (CSI), visit our product page here.